Why UPS Stock's 6.6% Dividend Yield Deserves a Second Look

The Yield That Doesn’t Have to Be a Trap

When a stock offers a 6.6% forward dividend yield, red flags typically go up. Investors immediately wonder: Is this a yield trap? Why is the payout so high if the company is healthy?

In the case of United Parcel Service (NYSE: UPS), these concerns are understandable but ultimately overblown. Yes, the stock carries a hefty dividend payout ratio of 87% — but the underlying fundamentals suggest the dividend remains secure, and the stock could actually have room to run higher.

Understanding the Dividend Yield: What Changed at UPS

To understand how UPS arrived at its current attractive dividend yield, we need to look at the dividend yield formula and the company’s trajectory. The dividend yield is calculated by dividing the annual dividend per share by the stock price. When UPS’ share price fell while the company maintained and even modestly increased its dividend, the yield climbed to 6.6%.

This dynamic emerged after years of post-pandemic pressure. During the e-commerce surge of the early pandemic era, UPS enjoyed robust financial performance. But since then, elevated labor expenses, softening parcel volumes, and more recently, tariff headwinds have weighed on profitability. Despite these headwinds, management continued to support the dividend, albeit with modest increases. That resolve suggests confidence in the company’s ability to weather current challenges.

Early Signs of a Turnaround

The narrative around UPS is beginning to shift. Since October, when the company reported better-than-expected Q3 2025 results, the stock has been gaining momentum. This isn’t just noise — it reflects genuine operational improvements.

UPS is actively pursuing a dual strategy: aggressive cost reduction and strategic customer reallocation toward higher-margin segments, particularly in healthcare. These moves should drive margin expansion and earnings growth acceleration. Wall Street currently models 4% earnings growth for the coming year, a conservative estimate that leaves room for upside surprises.

Consider the competitive context: FedEx (NYSE: FDX) recently posted stronger-than-expected results, signaling that the broader logistics industry may be stabilizing or even improving. If UPS continues to beat expectations, the stock could extend its rally, potentially catching up to FedEx’s more premium valuation.

The Dividend Is Safe — And the Upside Is Real

The 87% payout ratio might seem precarious, but in context, it reflects temporary earnings pressure rather than structural unsustainability. As operating performance improves and earnings rebound, that ratio will naturally compress, providing additional cushion for the dividend while creating room for potential increases.

For income investors, this setup is compelling: a 6.6% yield that appears durable, combined with a valuation that could expand if the turnaround gains traction. The stock trades at a discount to FedEx on a forward P/E basis, suggesting room for multiple expansion as UPS proves its operational improvements are real.

The combination of attractive current income and potential capital appreciation makes UPS worth considering for portfolios seeking both yield and growth potential.